Eicher Motors Limited is the flagship company of the Eicher Group in India and a leading player of the Indian automobile industry. The Company is the listed parent of Royal Enfield, the global leader in middleweight motorcycles. The world’s oldest motorcycle brand in continuous production, Royal Enfield has made its distinctive motorcycles since 1901. Focused on bringing back simple, yet engaging and accessible motorcycling, Royal Enfield operates in India, and over 60 countries around the world with modern development facilities in Leicestershire, UK and Chennai, India. Royal Enfield makes its motorcycles in Chennai, Tamil Nadu for the world. Royal Enfield has evolved into an experiential brand. Royal Enfield with its motorcycle that combines modern-day elements with the brand’s heritage, garners immense enthusiasm amongst global motorcyclists. In addition to motorcycles, Eicher has a joint venture with Sweden’s AB Volvo – Volvo Eicher Commercial Vehicles Limited (VECV) – has pioneered modernisation of commercial vehicles in India and other developing countries.

The automobile slowdown has not dampened hopes at Eicher Motors Ltd. Although the company, too, has been hit by sluggish sales of its flagship brand Royal Enfield (RE), the management has rolled out plans to grow twice as fast as the motorcycle industry over the next decade. But that has hardly stirred up the stock, though after a sharp correction of about 32% in the last year, its price seems to have stabilized lately.

The management has chalked out a strategy to introduce small-format stores to expand its distributor footprint. The company wants to target under-penetrated states where its brand has a lesser market share compared to its national average. The management also indicated that it will open a larger number of small-format stores and raise the store count from about 1,100 to 1,350 by FY20. Besides, it also plans to raise dealer profitability by increasing spare and accessory sales.

Analysis

The Indian Auto Industry comes in the top 5 largest auto industries in the world. India is also a prominent auto exporter and has strong export growth expectations for the near future. The support from the government is providing the auto companies with a boost needed in their development. But will it sustain?

We can look into more details and dig a little deeper into the analysis of the stock of this sector. Eicher Motors’ stock price today is Rs 4,946.85. Let’s look at how Eicher Motors is performing and if it is the right time to buy the stock of Eicher Motors with detailed analysis.

• The mainstream of revenue for the Auto Sector is their sales, Eicher Motors has reported decent sales growth of 14.30 % and in the latest quarter, sales was Rs 4,231.28 Cr. To judge whether the company’s inventory is being sold or not and whether the sales picture is true, the inventory turnover ratio plays a major role, which is 16.35 times for Eicher Motors. It is managing its inventory poorly.
   
• Eicher Motors reported Profit growth of 42.97 % over the year, where the latest year’s’s profit is Rs 3,749.42 Cr compared to the previous year’s Rs 2,622.59 Cr. The new permits by governments and increasing demand will lead to an increase in profits in the coming year.
   
• The operating profit of Eicher Motors in the latest quarter is Rs 1,178.59 Cr. It helps in measuring the company’s operating performance which is used to make financing decisions.
   
• Eicher Motors has a healthy ROE of 26.36 %. The ROE is an important financial parameter because Auto companies work with high equity investments. Also, they have to take huge debt to incur the research and manufacturing work so their Debt to Equity ratio should be evaluated. Eicher Motors has a low Debt to Equity ratio of 0.01.
   
• Eicher Motors pays a dividend of 51 Rs per share. It tells us that a company likes to share profits with its shareholders. The dividend yield is low at 1.03 %.
   
• The share of the promoter in Eicher Motors is low at 49.11 %, where the pledging is 0 %.
   
• What the market is willing to pay for the company for its earnings can be determined by PE multiple. The current PE of Eicher Motors is 34.55 compared to the 5-year average PE of 34.96.

The stock opened with positive momentum hence recommended above crossing its opening range. Risk/reward was beneficial to capture further momentum.